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UNITED STATES FIDELITY AND GUARANTY COMPANY v. FROSTY BITES

December 20, 2004.

UNITED STATES FIDELITY AND GUARANTY COMPANY, Plaintiff,
v.
FROSTY BITES, INC., Defendant. FROSTY BITES, INC. and NICHOLAS ANGUS, Counter-Plaintiffs, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Counter-Defendant.



The opinion of the court was delivered by: WILLIAM CONNER, Senior District Judge

OPINION AND ORDER

Plaintiff United States Fidelity and Guaranty Company ("USF&G") moves pursuant to FED. R. CIV. P. 59(e) and 60(b) and Local Rule 6.3 for reconsideration and amendment of this Court's July 16, 2004 Opinion and Order (the "7/16/04 Opinion") granting the motion of defendant and counter-plaintiff Nicholas Angus for partial summary judgment declaring that USF&G has a duty to defend or indemnify Angus against various intellectual property claims asserted against him in an action now pending in the United States District Court for the Northern District of Georgia (the "underlying action").*fn1 For the reasons set forth herein, we grant plaintiff's motion for reconsideration of the 7/16/04 Opinion, and upon reconsideration, hereby vacate the grant of partial summary judgment in favor of Angus insofar as it held that USF&G has a duty to defend or indemnify Angus for the intellectual property claims asserted against him in the underlying action. We also grant USF&G's motion for partial summary judgment and hold USF&G does not have a duty to defend or indemnify Angus in connection with the Second Amended Complaint of the underlying action.

BACKGROUND

  Unless otherwise noted, the following facts and procedural history are undisputed. Frosty Bites, Inc. ("FBI") is a business that was incorporated on January 11, 2000, to manufacture a cryogenically frozen ice cream product consisting of a free-flowing mixture of beads and irregularly shaped particles. (Pl. Mem. Supp. Mot. Recons., Ex. G at 2.) Angus was president and chief executive officer of FBI from January 11, 2000 until approximately February 26, 2003. (Id.) USF&G issued to FBI a commercial general liability insurance policy, No. BFS00000576041 (the "Policy"), effective from March 3, 2000 until March 3, 2001. (Id.) The Policy also covered FBI's "executive officers" and directors, and provided in relevant part that: "Your `executive officers' and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as shareholders." (Id.) It is uncontested that Angus, as FBI's president during the term of the Policy, qualifies as a covered director or officer. (Id.)

  The underlying action was brought by Dippin' Dots, Inc. ("Dippin' Dots") and Curt D. Jones against numerous individual and corporate defendants, including Angus and FBI, for patent and trademark infringement in the manufacture and sale of free-flowing beaded ice cream. (Pl. Mem. Supp. Mot. Recons., Ex. A ¶¶ 1-6.) In the Second Amended Complaint in the underlying action (the "underlying complaint"), Dippin' Dots included Angus with a group of defendants referred to as the "Mosey defendants" and also described him individually as the "Vice President of Dots of Fun and International Laser Expressions, Inc., managing director, owner and controller of Dots of Fun, Ltd., and President of Frosty Bites, Inc." (Id. ¶ 4.) Dippin' Dots alleged that the Mosey defendants committed patent infringement, trademark infringement, false designation of origin and violations of relevant state common and statutory law. (Id. ¶¶ 17-50.) FBI was, however, accused only of patent infringement. (Id. ¶¶ 25-30.) The allegedly infringing products were marketed and sold beginning in April 1996; the pleading alleges no concluding date. (Id. ¶ 12.) FBI tendered the underlying complaint to USF&G for defense and indemnification.*fn2 In May 2001, USF&G sent FBI a letter disclaiming coverage and denying any duty to defend or indemnify either FBI or Angus. (Pl. Mem. Supp. Mot. Recons., Ex. G at 3.)

  In June 2001, USF&G brought this declaratory judgment action against FBI in New York Supreme Court, Westchester County, seeking a declaratory judgment stating that: (1) USF&G is entitled to rescission of the insurance Policy based on material misrepresentations and failure to disclose facts material to USF&G's assessment of the underwriting risk; (2) coverage has been vitiated by FBI's failure to provide USF&G with timely notice of the claims against it; and (3) USF&G is not obligated to defend or indemnify FBI in the underlying action. Thereafter, the parties stipulated to the discontinuance of the action with prejudice as to other Frosty Bites entities that USF&G had named as defendants,*fn3 and FBI removed the declaratory judgment action to this Court in March 2002. (Id.)

  Subsequently, USF&G moved for partial summary judgment and on November 1, 2002, this Court entered an Opinion and Order,*fn4 which was summarily affirmed by the Second Circuit, declaring that USF&G has no duty to defend or indemnify FBI against the patent infringement claim because: (1) it was not an "advertisement injury" covered by the Policy; and (2) there was no duty to defend or indemnify FBI arising out of the other claims because those claims were not asserted against FBI. U.S. Fid. & Guar. Co. v. Frosty Bites, Inc., 232 F. Supp. 2d 101, 106 (S.D.N.Y. 2002) (Conner, J.), aff'd without opinion, 80 Fed. Appx. 152 (2d Cir. 2003) (hereinafter "Frosty Bites I"). While that motion was pending before this Court, Angus intervened in the declaratory judgment action and also asserted a counterclaim alleging that USF&G had breached the insurance contract by declining its duty to defend or indemnify FBI and himself in the underlying action. (Pl. Mem. Supp. Mot. Recons., Ex. G at 4.) Thereafter, USF&G and Angus both filed motions for summary judgment before this Court on the issue of whether USF&G has a duty to defend or indemnify Angus against trademark, trade dress and patent infringement claims asserted against him in the underlying action. In its 7/16/04 Opinion this Court ruled that USF&G has a duty to defend or indemnify Angus against those claims. In its present motion, USF&G seeks reconsideration and amendment of that ruling.

  DISCUSSION

  I. Motion for Reconsideration

  A motion for reconsideration is governed by Local Rule 6.3*fn5 and should be granted only where the moving party demonstrates that the court overlooked "controlling decisions or factual matters that were put before it on the underlying motion . . . and which, had they been considered, might have reasonably altered the result before the court." In re Methyl Tertiary Butyl Ether Prods. Liab. Litig., MDL No. 1358, 2001 WL 1042051, at *1 (S.D.N.Y. Sept. 7, 2001) (quotation and citation omitted). Whether to grant or deny a motion for reconsideration lies within "the sound discretion of a district court judge." Bennett v. Watson Wyatt & Co., 156 F. Supp. 2d 270, 271-72 (S.D.N.Y. 2001) (quoting McCarthy v. Manson, 714 F.2d 234, 237 (2d Cir. 1983)). In the Second Circuit, "the standard for granting [a motion for reconsideration] is strict, and reconsideration will generally be denied." Shrader v. CSX Transp. Inc., 70 F.3d 255, 257 (2d Cir. 1995); see also In re Health Mgmt. Sys., Inc. Sec. Litig., 113 F. Supp. 2d 613, 614 (S.D.N.Y. 2000) ("[R]econsideration of a previous order is an extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources."). Local Rule 6.3 should be "narrowly construed and strictly applied so as to avoid repetitive arguments." E. Armata Inc. v. David Lee's Produce Serv. Corp., No. 99 Civ. 2042, 2001 WL 1287006, at *1 (S.D.N.Y. Oct. 24, 2001) (quotations omitted). However, a court may grant a motion for reconsideration "to correct a clear error or prevent manifest injustice." Virgin Atlantic Airways, Ltd. v. Nat'l Mediation Bd., 956 F.3d 1245, 1255 (2d Cir. 1992); see also Seippel v. Jenkens & Gilchrist, P.C., No. 03 Civ. 6942, 2004 WL 2403911, at *1 (S.D.N.Y. Oct. 26, 2004); U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., Ltd., 182 F.R.D. 97, 100 (S.D.N.Y. 1998) (Conner, J.), aff'd, 241 F.3d 135 (2d Cir. 2001) ("Local Civil Rule 6.3 provides the Court with an opportunity to correct manifest errors of law or fact, hear newly discovered evidence, consider a change in the applicable law or prevent manifest injustice.").

  In our 7/16/04 Opinion, we held that USF&G has a duty to defend or indemnify Angus in the underlying suit based on claims of patent, trademark and trade dress infringement "[g]iven the broad nature of the duty to defend." In that Opinion we explained that whether USF&G is obligated to defend Angus does not necessarily depend on his legal capacity as stated in the underlying complaint because the facts in that pleading nevertheless indicate the potential for liability arising out of his FBI duties. Because we were unable to conclude that the underlying complaint named "Angus only in his individual capacity and does not refer to actions that are outside the scope of his covered duties as an FBI officer," and the law acknowledges that an insurer has a broad duty to defend its insured, we held that USF&G has a duty to defend based on a liberal construction of the underlying complaint. See U.S. Fid. & Guar. Co. v. Frosty Bites, Inc., 325 F. Supp. 2d 390, 396 (S.D.N.Y. 2004) (Conner, J.) (hereinafter "Frosty Bites II").

  In its motion for reconsideration, USF&G argues, inter alia, that the Court "overlooked the controlling nature of the Second Circuit's affirmance of the Court's determination that `Mr. Angus is not sued in his capacity as President of FBI.'" (Pl. Mem. Supp Mot. Recons. at 4.) USF&G contends that this Court's 7/16/04 Opinion is "irreconcilable with Frosty Bites I," and because Frosty Bites I was affirmed on appeal by the Second Circuit Court, the findings and rules in Frosty Bites I are "binding on the Court and are entitled to preclusive effect." (Id. at 3.)

  We recognize the merit in the argument and conclude that our 7/16/04 Opinion was based on clear error which, if uncorrected, could result in manifest injustice. Consequently, we grant USF&G's motion for reconsideration and will now reconsider whether USF&G has ...


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